Wheat Slides as Glut Grows; U.S. Corn, Soy Estimates Below Expectations

June 13th, 2016

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Category: Grains, Oilseeds

Weather affecting agriculture(Nasdaq) – Wheat prices tumbled Friday after the government boosted its forecast for U.S. production and predicted the largest amount of domestic grain stockpiles in almost 30 years.

“Excellent growing conditions” during the spring had blessed the nation’s hard-red winter wheat crop, the U.S. Department of Agriculture said in a monthly report, leading to a forecast for record winter-wheat yields.

“There’s a very good [wheat] crop sitting in the field, across a large area,” said Larry Glenn, an analyst at Frontier Ag in Quinter, Kan.

At the same time, domestic wheat stockpiles are likely to total 1.05 billion bushels at the end of the season next May, a 29-year high. The estimate was an increase from projected inventories of 980 million bushels in 2015-16 and also above analyst forecasts of 1.042 billion.

Global wheat supplies, which already are at records, are expected to rise next season to 257.8 million metric tons, up from an estimated 243 million tons in 2015-16, according to the federal forecasters.

With so much grain expected in the U.S. and abroad, wheat futures sank. The contract for July delivery fell 15 1/4 cents, or 3%, to $4.95 a bushel at the Chicago Board of Trade.

The wheat estimates also weighed on sentiment in the corn market, even though the USDA predicted smaller-than-expected supplies of that crop.

Wheat is a substitute for corn in animal feed, and expanding wheat supplies could drag corn prices lower as meat packers substitute cheaper wheat for comparatively more expensive grains.

An oversupply of wheat could act as “a weight around neck of corn market,” said Dave Marshall, farm-marketing adviser at TCFG LLC in Nashville, Ill. He said the government’s estimate for hard-red wheat output was a surprise.

CBOT corn for July fell 3 1/2 cents, or 0.8%, to $4.23 a bushel.

Corn prices surged initially after the USDA said domestic corn stockpiles at the end of next season likely would total 2.008 billion bushels, up from estimated inventories of 1.708 billion bushels in the current season ending in August. Both figures were lower than analysts’ forecasts.

The USDA’s outlook for tighter inventories in corn comes amid reduced forecasts for production in Brazil, a rival exporter, and expectations that elevated demand will help eat into domestic supplies.

The USDA left unchanged its existing projection for U.S. corn production this autumn, estimating farmers will harvest a record 14.43 billion bushels of corn.

Soybean prices notched a nearly two-year high, extending a multimonth rally after government forecasters trimmed their outlook for supplies of the oilseeds.

Rain-reduced soybean crops in Argentina and lower Brazilian output are expected to encourage foreign buyers to shift purchases to the U.S., helping draw down domestic supplies.

“People thought South American corn and soybean yields were basically in the bag,” said Mr. Marshall, adding that for soybean traders, “there’s way more upside potential than downside risk if we have any kind of a weather hiccup” in the U.S. this year.

Traders are closely watching U.S. weather forecasts amid concerns that hot, dry weather over the summer could curb domestic crop yields.

The USDA forecast domestic soybean stockpiles at the end of August 2017 would total 260 million bushels, down from estimated inventories of 370 million bushels in 2015-16. The figures fell below analysts’ forecasts.

Globally, soybean stockpiles at the end of next season are expected to fall to 66.3 million metric tons from 72.3 million in the current season. The USDA on Friday reduced its forecast for Brazil’s soybean crop but left Argentina unchanged.

Soybean prices topped $12 a bushel immediately following the report but pulled back from that high. At the close, the July soybeans contract was up 2 1/4 cents, or 0.2%, to $11.78 1/4 a bushel, the highest closing price on CBOT since August 2014.

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